Toronto City Hall

100 Queen Street West

Toronto, Ontario

Canada M5H 2N2

March 11, 1998

To: Works and Utilities Committee

From: Barry H. Gutteridge, Commissioner, Works and Emergency Services

Subject: Use of Abandoned (Decommissioned) Gas Mains for Telecommunications Conduit Purposes - Agreement with Consumers Gas

Purpose:

To authorize an agreement between The Consumers Gas Company Limited (Consumers Gas) and the City to permit the refurbishing and use of abandoned (decommissioned) gas mains within public road allowances for the purposes of a conduit structure for fibre optic cable.

Funding Sources, Financial Implications and Impact Statement:

The proposal will result in revenue generation potential for the City in accordance with the formula set out in the body of this report. No costs to the City are involved.

Recommendations:

(1) That City Council authorize the entering into of an agreement with The Consumers Gas Company Limited (and/or other parties as may be necessary) to permit the refurbishment and use of abandoned (decommissioned) gas mains within public road allowances for the purposes of a conduit structure for fibre optic cable, with such agreement generally containing the terms and conditions set out in this report, and such other terms and conditions as may be required by the City Solicitor, in consultation with the Commissioner of Works and Emergency Services;

(2) That the City Solicitor be authorized to prepare and introduce in Council a by-law to authorize the entering into and execution of this agreement; and

(3) That the appropriate City Officials be authorized and directed to take the necessary action to give effect to the foregoing.

Background:

The Consumers Gas Company Limited and Metronet Communications Group Inc. have approached City staff with a proposal to utilize abandoned (decommissioned) gas mains located within public road allowances as a conduit structure for fibre optic telecommunications cable. Staff have met with representatives of the firms on a number of occasions, and based on the discussions, have concluded that the scheme is supportive of the City=s dual objectives of fostering the development of a competitive, state-of-the-art telecommunications infrastructure to benefit the business community and to enhance economic development, while realizing direct revenue and services to the City.

Comments:

The former City of Toronto Council, at its meeting of June 23 and 24, 1997 authorized an agreement between Metronet Communications Group Inc. and the City involving:

1. a lease of a decommissioned high pressure watermain system in the downtown core and other City-owned decommissioned pipe located within the (former) City of Toronto, in accordance with a Request for Proposals, for the purposes of installing, maintaining and operating a high speed fibre optic telecommunications network and sub-leasing space for third party-owned cables within the pipes;

 

2. a licence by way of a Municipal Access Agreement to allow Metronet to enter upon the Public Highways under the jurisdiction of the (former) City of Toronto for the purposes of installing, maintaining and operating the network throughout the City, subject to the City=s requirements and permissions for construction within the street allowance.

The Agreement that followed set out the parties= rights and obligations related to such work and included a comprehensive compensation package to the City with substantial direct revenues accruing. The Metropolitan Toronto Council, at its meeting of August 13 and 14, 1997, among other things, approved the installation of the telecommunications network within the limits of Metro roads located in the former City.

Subsequently, City Council, at its meeting of October 6 and 7, 1997 endorsed a Standard Form Municipal Access Agreement to be entered into by parties wishing to access (former) City of Toronto streets for the purposes of installing telecommunications cables and auxiliary equipment.

Consumers Gas and Metronet Communications Group Inc. wish to enter into an agreement to utilize abandoned (decommissioned) gas mains in the public road allowances for the purposes of providing a conduit structure to carry fibre optic telecommunications cables, and require the City=s consent to this arrangement. The Consumers Gas arrangement with Metronet involves 2 aspects:

Consumers Gas states that about 42 km of abandoned gas main would likely be used for the Metronet network. Metronet would be responsible for all of the pipe refurbishment costs, but would not take ownership of the pipes. Metronet would own appurtenances installed on the

pipes as well as the fibre optic network, including telecommunications improvements. In the event small portions of the pipes are missing, the links that would be constructed to connect the pipes would be deemed to be part of the abandoned gas main. Letters of Intent have been entered into between Consumers and Metronet, and resolution of the City participation remains the last outstanding item to completing these arrangements.

In addition to the obvious advantages to the proponents of the proposed use of abandoned gas mains for telecommunications purposes (in Consumers case, the ability to realize a return on an unutilized asset, and for Metronet, the ability to deploy its telecommunications at a quicker rate with potentially far less capital cost), the concept, in principle, also holds promise from the City=s perspective.

In accordance with the City=s agreement with Metronet, payments are made to the City in part based on Metronet=s revenues. If these can be accelerated by virtue of the network being installed more efficiently, then the City will benefit. Of course, this is also consistent with the over-riding objective of facilitating a competitive telecommunications infrastructure in Toronto and the resulting economic development enhancement. Finally, the use of the existing abandoned structures in the streets will result in far less disruption of the streets than would otherwise be possible if new conduit were to be laid. This will reduce construction impacts on pedestrian and vehicular flows and avoid damaging the pavements.

The following list outlines the key issues and basic terms that should be addressed in an agreement between Consumers Gas and the City for the grant of permission to utilize decommissioned gas mains in the City streets for telecommunications purposes.

1. Permission to use the decommissioned gas mains for telecommunications purposes would only be granted to parties with a valid Municipal Access Agreement (and only in the areas where the MAA is applicable) with the City, and would be non-exclusive, to ensure that only authorized parties are carrying out work within the public road allowance.

 

2. City staff are of the view that Consumers Gas has statutory rights to be in Toronto road allowances for purposes of distributing gas, but this does not extend to any other unrelated use for these pipes. Accordingly, the agreement should limit the use of the decommissioned gas mains only to telecom purposes. Consumers Gas will be responsible to secure any regulatory or other approval (if any) required to authorize this initiative.

 

3. The issue of co-ordinating underground road allowance space, particularly in the highly congested downtown area, is very important. We do not want Consumers Gas to Areactivate@ the substantial abandoned gas main network on the basis that there may be an opportunity to use it at some undefined future time for revenue generating purposes unrelated to gas distribution. Co-operation amongst all utilities operating within the tight confines of the road allowance is essential to preserve efficiencies for all. Consumers Gas has acknowledged this issue, noting that the plan now involves approximately 42 km of pipe, and have pledged that requests by other utilities to install plant in an abandoned gas corridor would be Adealt with reasonably@. From the City=s perspective, the agreement must contain the provision that unless the abandoned main has already been refurbished or a plan is actively being developed (i.e. installation within a specified period of time) to do so, the Commissioner of Works and Emergency Services has the right, in his sole discretion, to re-allocate the corridor for other municipal or utility purposes.

 

4. Permitting and Occupancy of the Street Allowance - Works in the street allowance would be subject to all of the applicable municipal by-laws, usual payments, taxes, fees and permit approval requirements. Consumers Gas would be subject to all of the requirements and conditions for this undertaking that are currently in effect relative to its gas system in the streets.

 

5. Compensation - It should be recognized that entering into an agreement with Consumers Gas to permit the use of abandoned gas pipes for telecommunications purposes would not affect the revenue or dark fibre provisions the City receives from the telecom companies through its lease/licence agreement with Metronet or any future Municipal Access Agreements. On the other hand, staff feel that the City should also participate directly in some reasonable manner in the revenue generation potential of the abandoned gas mains given that Consumers Gas has the ability to generate these additional revenues only by virtue of the fact that it occupies valuable space in the public highways with plant that was originally intended to distribute gas.

 

Consumers Gas has offered to pay the City an annual fee of $1.00 per metre of refurbished decommissioned gas main, based on the municipal taxation rate currently payable on a 4 inch diameter active plastic gas pipe. In view of the payment to be received by Consumers, stated to be in the range of $2.00 to $2.50 per metre per annum, I am prepared to recommend acceptance of a fee within this general order of magnitude. Consumers has indicated that the proposed fee to be charged to Metronet reflects the return it receives currently on its active gas distribution network. To ensure that all of the above parameters remain in relative balance throughout the term of the agreement, while maintaining the general relationship proposed by Consumers, however, I would suggest that the fee to be paid to the City for the use of refurbished decommissioned gas main for telecommunications purposes in the road allowances be set at the greater of:

 

(i) the applicable taxation rate of an active four inch diameter plastic gas pipe; or

 

(ii) 50% of the gross per meter per annum fee (excluding taxes) Consumers charges the telecom operator.

 

The fee would be exclusive of any other applicable taxes that are currently in effect, or may be imposed in the future by any regulatory body, with such taxes being the responsibility of Consumers and/or the telecom operator. Further, in order to ensure that the per metre fee component is fair and reflective of its value, the agreement with the City should include an undertaking from Consumers Gas that any party seeking access to the decommissioned gas mains would be charged in accordance with the principle set out earlier in this report.

 

At the time of submission of its annual fee, Consumers would submit appropriate documentation and plans outlining the extent of the system. Confirmation provisions should also be incorporated in the agreement.

 

6. In the event an abandoned gas main parallels a decommissioned City watermain and Metronet has not utilized the full capacity of the watermain, the City should receive compensation at a rate equivalent to the City lease with Metronet. This provision may require the involvement of the telecom provider and not Consumers directly.

 

7. With respect to the construction of new links to connect breaks or other gaps in decommissioned gas lines, for the purposes of this agreement, such links will be deemed to be part of the refurbished gas pipe and subject to the City fee if they are also subject to Consumers Gas per metre fee charged to the telecom operator.

 

8. City use of capacity in refurbished gas pipe - Staff have requested that should the City, at its sole option, wish to utilize sections of decommissioned gas pipe to install fibre optic cable and appurtenances for its own non-commercial purposes, it should have the opportunity to do so subject to paying a reasonable amount to refurbish the pipe, but not the per metre fee. Of course, the Consumers Gas fee to the City would also not be applicable in this instance.

 

9. The City, by entering into this agreement would not be representing or assuring that any particular alignment or routing of a segment of abandoned gas pipe would be usable or approved for the purpose of telecommunications conduit.

 

10. Term - It is proposed that the agreement be based on a 15 year or lesser term, with renewal considerations.

 

11. The ability of Consumers Gas to assign the agreement to a subsidiary or affiliate provided that Consumers Gas remains responsible for the fulfilment of the terms, is generally acceptable.

 

12. Consumers Gas will agree to fully indemnify the City against all loss and liability, including environmental liability stemming from the permission granted under this agreement.

 

13. Consumers Gas shall provide proof of insurance in a form and amount satisfactory to the Chief Financial Officer and City Treasurer, including naming the City as an additional named insured.

 

14. The agreement shall contain provisions relating to expiry and termination, including the right for the City to require that all equipment be removed from the pipes, or the pipes relocated and the public highway restored to the satisfaction of the Commissioner of Works and Emergency Services.

 

15. The agreement will contain any other provisions deemed appropriate by the City Solicitor, in consultation with the Commissioner of Works and Emergency Services.

Conclusion:

Staff are of the view that the proposal by Consumers Gas and Metronet to utilize abandoned gas mains within public road allowances as a telecommunication conduit structure, under the general framework set out in this report, is a positive initiative for the proponents and the City in terms of facilitating the deployment of a current, competitive telecommunications infrastructure in the City. It will achieve these objectives with less disruption to the street and sidewalk system than would otherwise be possible if new construction were involved. The proposal will enable the efficient use and conservation of structures that are presently located within the road allowance, but not currently in active use. Finally, the City will derive direct revenue from the plan.

Contact Name and Telephone Number:

Andrew Koropeski, Director

Infrastructure Planning and Transportation

Toronto City Works Services

416-392-7711

Barry H. Gutteridge

Commissioner

Works and Emergency Services